The Supreme Court is hearing arguments Tuesday that may make your "treat yoself" online orders a little less of a treat. Due to a new Supreme Court case, South Dakota vs. Wayfair, online retailers might have to begin adding sales tax to all purchases in the near future. The other defendants in the case are major online retailers Newegg and Overstock.
Online giant Amazon has also been the subject of scrutiny in the past for its failure to add sales tax to all online purchases, though they're not explicitly listed as a defendant in this case, according to The Washington Post. Online retailers are technically only required to charge sales tax in states where they have a physical presence, according to CNN, but due to the boom in Amazon distribution centers around the country in recent years, the company began collecting sales taxes in all of the 45 states that require it in April 2017. But that didn’t mean that all of your Amazon orders suddenly got way more expensive.
This is due to the 1992 Supreme Court ruling in the case of Quill Corp. vs. North Dakota, which set the precedent on state tax policies for out-of-state or online retailers. The Quill case made it possible for businesses to subvert paying state taxes if they didn't have a brick-and-mortar presence within the state.
Which means, thanks to Quill, Amazon currently only adds sales tax to items sold directly from Amazon, while third party vendors on the site do not, CNN reported. However, if those third-party vendors are required to begin adding sales tax in all cases, the consumer could be shouldering a higher price for their online orders.
That’s good for you when you buy, but Max Behlke, the director of budget and tax policy for the National Conference of State Legislatures argued that it’s bad for states in the long run. "The way we are consuming things is so different. Because of that, the states' sales tax revenue is not keeping pace," Behlke told CNN. "States have to modernize [sales taxes] to the 21st century. If they can't collect sales taxes, it'll mean higher state income taxes or property taxes."
According to a report released in November 2017 by the Government Accountability Office, states could stand to benefit from adding sales tax to online purchases. In fact, had they done so in 2017, states could have generated as much as $8 billion to $13 billion in sales taxes, the GAO report concluded.
President Trump has had plenty to say about Amazon’s sales tax policies. He took to Twitter last month to criticize the retailer saying:
I have stated my concerns with Amazon long before the Election. Unlike others, they pay little or no taxes to state & local governments, use our Postal System as their Delivery Boy (causing tremendous loss to the U.S.), and are putting many thousands of retailers out of business!
While the assertion that Amazon doesn't pay taxes isn't entirely true, according to a report by the Institute on Taxation and Economic Policy, they are undercutting some local businesses with their tax rates.
“Amazon is either not collecting local taxes or is charging a lower tax rate than local retailers,” the report says. “It [the collection gap] also suggests that many localities are unprepared to reap the benefits of expanded sales tax collection authority that may soon be coming from the U.S. Supreme Court or Congress.”
The push isn’t just to generate tax revenue. Many people believe that taxing online giants is one of the things it’s going to take to even the score between big companies like Amazon or Walmart and your local small business. Some argue that ruling in favor of smaller local business who may also deal in much more modest online sales are going to be hit hardest by these new rules.
"The reality is that these [online] small businesses are just going to go out of business, because they can't absorb the costs," Andrew Pincus, one of the lawyers who represent eBay —whose vendors would also be affected by the eventual ruling— told NPR. In a panel on the issue at the National Press Club of Washington earlier this month, Pincus said, "The reality is that a lot of these companies will go out of business because of the intolerable effects that will come with a Quill reversal."
Whichever way South Dakota vs. Wayfair plays out, the checkout section of your Amazon shopping experience could be changing very soon.